A new plan from Gov. Bill Walker's administration to broadly restructure Alaska's finances would convert the Permanent Fund into an endowment-like fund that absorbs oil income and generates billions of dollars in annual revenue for the state's treasury, Attorney General Craig Richards announced Wednesday.
The sweeping changes would insulate state government from swings in the price of oil, Richards said in a briefing with reporters, and also likely reduce the Permanent Fund dividend to around $1,000, slightly below the roughly $1,400 average it has been for the past decade.
Future dividend checks -- termed "Royalty Dividends" in place of "Permanent Fund Dividends" -- would be tied to Alaska's slowly declining oil production, though the hoped-for construction of a natural gas pipeline could provide a boost.
In the early morning briefing at the Capitol, Richards said the Walker administration wants to guarantee a more consistent stream of money to pay for Alaska's government, which he said would be better for an economy that "favors stability over almost anything." The annual payments from the fund would be sustainable over the long term and account for inflation, Richards said.
The changes to the Permanent Fund are expected to be only part of Walker's response to the $3 billion budget deficit he inherited when he entered office in December. The rest of the plan hasn't been announced and remains in flux, but likely will include new taxes for individual Alaskans and some changes to oil-tax credits.
The state's current fiscal system deposits oil revenue directly into the general fund. From the general fund, it pays a large share of the operating budget, allowing lawmakers to boost spending in good years and forcing austerity when prices drop.
"You're jerking your economy around like a seesaw based on oil prices," Richards said. "You want to get to the point where you can have a stable economy that doesn't ride the boom-and-bust cycles of the oil markets."
The Walker administration's proposal is not complete -- it's still subject to change and would require legislative approval, Richards said. But it represents what another Walker administration official described as the "concept underpinning our fiscal plan."
Legislators have generally treated Walker's fiscal ideas with skepticism. But in interviews after Richards briefed them on the plan mid-day Wednesday, many said it deserved a hard look.
"I'm willing to approach this with an open mind and I look forward to vetting it through the legislative process," said Rep. Bryce Edgmon, D-Dillingham, who caucuses with the House's Republican-led majority. He said the Walker administration's idea was "definitely worth considering."
The financial proposal has been under development for months as the Walker administration explored ways to match Alaska's revenue and expenses. A sharp drop in oil prices and declining production blew the $3 billion hole in the state's budget.
Until last year, taxes and royalties from North Slope oil production accounted for nearly 90 percent of state revenue, though that proportion has declined to about 75 percent. Over the past two decades, elected officials have made similar proposals to insulate Alaska's finances from oil price fluctuations, but none have made it through the Legislature, where lawmakers have been leery of plans that could affect residents' dividends or be called a "raid" on the Permanent Fund.
To develop the plan, Walker recruited feedback from members of his transition team at a conference in Fairbanks. An internal "financial opportunities working group" led by Richards then studied the practices of other oil-reliant governments like those of Norway and Saudi Arabia.
The proposal ultimately released Wednesday is described as a "sovereign wealth fund" -- a financial term that refers to a government-owned investment fund.
"This policy shift would aim to provide a sustainable budget while preserving oil wealth for future generations," said a report on the proposal that was also released Wednesday.
The plan does not completely close the budget gap, however. A breakdown released by the Walker administration shows Alaska drawing $3.3 billion each year from the restructured Permanent Fund, which leaves the state with about $4.1 billion in annual revenues when other sources are included.
The gap between that figure and the state's $5.2 billion budget could be filled by some combination of taxes, budget cuts, or borrowing money in the form of bonds.
Those details are expected from Walker's administration before the start of the regular legislative session in January.
Richards said that lawmakers will need to approve the Permanent Fund restructuring during that session for the plan to work, since it relies, in part, on money sitting in accounts that could otherwise be spent.
"We barely have enough assets to get us within a solution," he said.
That urgency is endorsed by Rep. Mike Hawker, R-Anchorage, who's long advocated for his own proposal to manage the Permanent Fund more like an endowment. Hawker, in an interview after Richards' legislative briefing, said that the Walker administration's idea mimics another plan proposed in the 1990s by Anchorage attorney Roger Cremo.
"We're simply dusting off and revising some very old ideas," Hawker said, adding that they're ideas that have "substantial merit."
An endowment model has long been endorsed by the Permanent Fund's board of trustees, and Hawker said it's an accepted best practice for large government-owned funds. But he added that the concept has never gotten traction in Alaska because "politicians have vilified it."
One Democratic senator, Bill Wielechowski of Anchorage, said Walker's plan is "not where I would have gone," and pointed out that its projected dividend would be a sharp drop from this year's $2,072 check.
"You're asking for $1,000 from every Alaskan," Wielechowski said. "I think there are better ways to do it."
Those include reforms to the state's $500 million annual oil tax credit program, and increasing taxes on oil producers, he said.
Many lawmakers say they think that new taxes or spending some money from the Permanent Fund on government will be necessary to balance the state budget. And some also agree with Walker that such measures should be approved at the upcoming legislative session.
Others, however -- particularly members of the Republican-led Senate majority caucus -- argue that Walker's administration should be focused on budget cuts before proposing to raise new revenues to pay for government.
"This is going to roll into one hellacious political conversation," Hawker said. He added that if politicians acted responsibly, "we would move this in a heartbeat."
(c)2015 the Alaska Dispatch News (Anchorage, Alaska)
